haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I have no idea who you are addressing this to. But in case it is at least partly to me, I will say that I agree with you 100%. I have been following PE10 since the publication of Irrational Exuberance in 1996. No one with any sense thinks it is a near or intermediate term indicator. It is not an indicator at all, it is a way to look at known historical data: the cyclically adjusted PE by month. That is all I am looking for; I completely understand that nothing more is reliably possible. People who say that markets cannot be predicted are wrong. They just cannot be predicted over the period that would suit these people's time horizon and patience. Stock market investing is mainly a character test, not a test of intelligence or knowledge. One cannot have it all- all the gains, and none of the losses. If you want all the gains, barring extreme good luck, you will also get a lot of the losses. If an index investor wants to minimize losses, he will miss some gains, and sometimes some very big gains, like the period of our greatest bull market ever, 96-99.I would not argue for a good market due just to PE expansion and respect that we are "up there". So I kind of agree with MooreBonds and Ha. However, I use PE10 in my own methodology but here is the data point for now: we are at the 87th percentile of PE10 since 1920. By that I mean that 13% of the time PE10 has been above this level. Probably this is biased towards recent decades i.e. in recent decades PE10 has been elevated.
PE10 is backward looking and if it is an indicator, it is a long run one that does not correlate with next year's results but maybe further out like 10 year results. If it did correlate with intermediate results everyone would be solely using it. Let's face it, everyone knows about PE10.
If people think this is incorrect let's see the data. I am very willing to learn about new thinking. I think using valuation as the only indicator of market loftiness is not good enough. This is not just my viewpoint.
I rest my case your honor.
I tend to have legacy investments into which I am more or less locked either because of capital gains taxes that would be due if I sold, or in the case of MLPs ordinary income that would be recaptured. So I tend to always have considerable equity holdings. But if I only could buy index funds in tax favored accounts, I would own very little of any of it now. If we got a roaring bull market, I really would not care. I tend not to have that woulda coulda shoulda problem. Todays PE10 is the 87th percentile ( though we both know that it is distorted by the last two decades, and in particular by today's astounding profit margins). These margins cannot continue to exist in a capitalist economy, though it is possible that today's managed crony economy should no longer be called capitalist.
So I make the assumption that it is likely that very long term means and tendencies will continue to exert themselves. From my POV, going long at the 87th percentile is pure speculation, not investing.
Good luck to anyone who is doing it.
Ha
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